Minnesota Journal of Law & Inequality Minnesota Journal of Law & Inequality

Volume 11 Issue 2 Article 4

December 1993

The Courts' Role in Preserving the Family Farm during Bankruptcy The Courts' Role in Preserving the Family Farm during Bankruptcy

Proceedings Involving FmHA Loans Proceedings Involving FmHA Loans

Carol Ann Eiden

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Recommended Citation Recommended Citation Carol A. Eiden, The Courts' Role in Preserving the Family Farm during Bankruptcy Proceedings Involving FmHA Loans, 11(2) LAW & INEQ. 417 (1993). Available at: https://scholarship.law.umn.edu/lawineq/vol11/iss2/4

Minnesota Journal of Law & Inequality is published by the University of Minnesota Libraries Publishing.

The Courts' Role in Preserving the FamilyFarm During Bankruptcy Proceedings

Involving FmHA Loans

Carol Ann Eiden*

Over a twelve year period, Kenneth and Lanae Fisher in-curred three Farmers Home Administration (FmHA) loans' fortheir family farm. On July 26, 1988, the Fishers filed a petitionunder Chapter 12 of the bankruptcy code.2 In the reorganizationplan, the Fishers calculated the FmHA loans' repayment rate as aweighted average of the three different interest rates at which theyhad borrowed. The FmHA objected, claiming this weighted averagewas too low. Yet the bankruptcy court 3 affirmed the Fishers' plan,and the district court affirmed the bankruptcy court's decision.4The Court of Appeals for the Eighth Circuit, however, reversedthese decisions, 5 interpreting Chapter 12's cramdown provision 6 asrequiring the Fishers to pay back their loans at a higher interestrate after bankruptcy than previously. 7

* Carol Ann Eiden received her B.A. in 1990 from the College of St. Catherine,with a double major in English and mathematics. She received her J.D. from theUniversity of Minnesota Law School in 1993. Her interest in family farm issuesstems from having grown up on a small dairy farm in Cologne, Minnesota; she be-longs to the fifth generation of Eidens to have lived on this dairy farm.

1. Low-income family farmers qualify for special low interest loans offered bythe Farmers Home Administration (FmHA). This government agency was estab-lished to specifically aid low income farmers. See infra notes 42-44 and accompany-ing text.

2. The United States Congress enacted Chapter 12 bankruptcy to help familyfarmers through the present farm crisis. See also infra notes 101-17 and accompa-nying text. See H.R. CoNF. REP. No. 958, 99th Cong., 2d Sess. 48 (1986), reprinted in1986 U.S.C.C.A.N. 5246, 5249.

3. In re Fisher, 930 F.2d 1361, 1361 (8th Cir. 1991) (citing In re Fisher, No. 88-05611 (Bankr. D.N.D. Jan. 25, 1989)).

4. Id. (citing In re Fisher, No. A1-89-053 (D.N.D. June 6, 1989)).5. Id. at 1364.6. The cramdown provision provides that if a creditor receives the present value

of the loan's secured collateral, a debtor's repayment plan may be crammed onto thecreditor. 11 U.S.C. § 1225(a)(5)(b) (1988). See infra notes 87-88 and accompanyingtext.

7. The original rates for the three FmHA loans were 7.25%, 4.5%, and 4.5%.930 F.2d at 1363. The court rejected these rates as too low and held that the loansshould be repaid at the market rate. Id. at 1363, 1364.

Law and Inequality

Fisher illustrates the power courts possess to influence thefate of the imperiled American family farm.8 Chapter 12 bank-ruptcy was enacted to help family farmers survive the present farmcrisis. 9 During Chapter 12 proceedings, courts, like the Fishercourt, interpret the code, thereby determining the extent of Chapter12's protection for family farms.

This article argues that interpreting the statute to place thefarmer in greater debt after filing for bankruptcy contradicts Chap-ter 12's purpose by hurting those farmers most in need of help.Part I discusses the evolution of the American family farm and thefactors contributing to its demise. Part II examines statutory re-sponses intended to relieve the plight of the family farm, includingChapter 12 bankruptcy proceedings. Part III describes variouscourts' interpretations of present "value' under the bankruptcycode. Part IV presents a more reasonable resolution for cases likeFisher, one which comports with Chapter 12 and satisfies underly-ing policy considerations.

I. The Changing Face of Agriculture: Demise of anInstitution

The United States began as an agricultural nation, with thefamily farm feeding and raising this country. The family farm re-tained its central position in the American socioeconomic structurefor most of our country's history. However, the twentieth century,hosted a dramatic decline to family farming; government programsseeking to hinder this trend, actually accelerated the descent. Inthe present agricultural economy, family farms have been displacedby large nonfamily corporate or industrial farms. Family farmerspresently struggle to survive the worst farm crisis in the history ofthe United States. The survival of the family farm in America ap-

8. As used in this article, "family farmers" consist of those people owning andrunning noncorporate farms alone or with a family member or corporate farms inwhich over 50% of the outstanding stock or equity is held by one family or one familyand relatives, and this family or these relatives run the farm.

9. The current farm crisis grips the entire farm economy. Land values droppedapproximately in half since 1981, resulting in undersecured loans. Neil E. Harl, TheFinancial Crisis in the United States, in Is THERE A MORAL OBLGATION To SAVETHE FAMILY FARM? 112, 113 (Gary Comstock ed., 1987). More farm foreclosures,land contract forfeitures, and note defaults occurred than at any time since theGreat Depression. Id. The crisis affects entire rural communities. Lenders in ruralcommunities fight to overcome the effects of loan defaults and farm foreclosures. Seeid. Sellers of farm supplies suffer from undersecured and unpaid debts. See id. Thedepressed farm economy similarly hurts "main-street" retailers due to the reducedcash flow. See id. Although the Midwest has been most severely affected by thefarm problems, when a significant segment of the population has been affected, theeffects touch the entire country.

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pears doubtful. This section details this rise and fall of the Ameri-can family farm.

In 1790, ninety-five percent of the United States' populationlived in a rural, agricultural setting.O Hence, the agrarian tradi-tion prevailed," and agrarian-based ideas appealed to many, as ex-emplified by Jefferson's successful political ideology. 12 Familyfarmers contributed to the expansion of the United States by pio-neering the settlement of the West.'3 Although the "farmer's fron-tier" pushed steadily westward in the years preceding the CivilWar, the post-Civil War decades hosted an unprecedented surge inagriculture.'4 The 1862 Homestead ActX5 hastened settlement ofthe West and stimulated massive growth in agriculture. Thenumber of farms grew more between 1860 and 1910 than duringany other period in American history.' 6 This flourishing, however,sharply curbed in the twentieth century when America transformeditself into an urban culture. The farm population continues toplummet.17 Today, little more than one percent of Americans live

10. Richard S. Kirkendall, A History of the Family Farm, in Is THERE A MORALOBLIGATION To SAVE THE FAMILY FARM?, id., at 80.

11. This agrarian tradition embraces neighborly behavior; concern for futuregenerations; deriving dignity from hard work; and acting frugally, modestly, hon-estly, and responsibly toward the community. MARTY STRANGE, FAMILY FARMING: ANEW ECONOMIC VISION 35 (1988).

12. The family farmer played an important role in Thomas Jefferson's demo-cratic ideology. Kirkendall, supra note 10, at 80. Agriculture's economic importanceand the plentiful land available in America helped Jefferson's democratic ideas suc-ceed. Id. Jeffersonian agrarianism borrowed traditional agrarian ideas from Eu-rope. Id. Such ideas promoted the superiority of farming, for example, claiming thatworking on the land benefitted the human personality. Id. Jefferson fashionedthese ideas to fit his democratic philosophy. Id. He believed that work performed onfamily farms cultivated the personality type essential to a democratic political sys-tem. Id. at 81. "Jefferson felt deep attachment to the land and had an unquestion-ing trust in the common people who tilled it"; he considered farmers "the eternalguardians of public virtue." WINTHROP D. JOaDAN ET AL., THE UNITED STATES 162(5th ed. 1982).

13. JORDAN, supra note 12, at 416-17.14. Id. at 416. Between 1870 to 1900 the number of American farm acres

doubled, from 407 million to 841 million. Id.15. Homestead Act, ch. 75, 12 Stat. 392 (1862) (repealed 1976). The Homestead

Act offered 160 acres to anyone who would settle the land and work it for five years.Id. The act offered free public land in the West to any United States citizen or anyindividual declaring an intention of becoming a citizen. Id. During the 1860s Min-nesota set the record for the most homestead filings in a single year: 26,000. JOHNOPIE, THE LAW OF THE LAND: Two HUNDRED YEARS OF AMERICAN FARMLAND PoLIcY65 (1987).

16. The number of farms increased from 2 million to 6.4 million between 1860and 1910. Kirkendall, supra note 10, at 82.

17. A farm goes out of business in America every six minutes. Paul Hendrick-son, Those Who Are No Longer with Us, in Is THERE A MORAL OBLIGATION To SAVETHE FAMILY FARM?, supra note 9, at 47, 48.

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and work on family farms.18 The number of farms declined from6.4 million in 1920 to 2.1 million in 1987.19 While the number offarms decreases, the number of acres per farm increases. 20 Familyfarms fail, and their lands are incorporated into larger corporatefarms.2 1 The average size of these corporate farms is six times thatof the average family farm.22

Corporations have grown to dominate and control the farmeconomy in a number of ways. Increasingly, formerly independentfarmers work under contract arrangements for agribusiness corpo-rations.2 3 These arrangements, such as "forward contracting,"24

create a type of price-fixing for farmers' crops. 25 Moreover, theprofits farmers receive are reduced by corporate middlepeople who

18. Kirkendall, supra note 10, at 79.19. Bob Secter & Tracy Shryer, Farmer's Exodus of the Young; The 80's Crisis is

Over, But the Turmoil Took a Toll on Youth. Many Are Seeking Other Careers in aTrend That Could Hasten the Ongoing Decline of Family Enterprises, L.A. TuMEs,July 23, 1991, at Al. These figures were extracted from the 1987 U.S. Census ofAgriculture. Moreover, a 1986 study by the Office of Technology Assessment pre-dicted that the number of farms would further plummet to 1.2 million by the year2000 if current trends continue. Id.

20. F. Larry Leistritz & Steve H. Murdock, Financial Characteristics of Farmsand of Farm Financial Markets and Policies in the United States, in THE FARM Fi.NANCiAL CRISIS: SOCIOECONOMIC DIMENSIONS AND IMPLICATIONS FOR PRODUCERS ANDRURAL AREAS, 13, 30 (Steve H. Murdock & F. Larry Leistritz eds., 1988).

21. Current low prices encourage large farms to swallow small farms. STRANGE,)supra note 11, at 122 ("corporate farms ... can buy land at will in a weakenedmarket"), 105-06 (analogizing this acquisition of failing small farms by large farmsto "barricudas ... feeding on tuna.").

22. The 1982 Census of Agriculture determined that the average size of a familyfarm was 330 acres. In contrast, corporate farms possessed six times this much acre-age. Don E. Albrecht & Steve H. Murdock, The Structural Characteristics of U.S.Agriculture: Historical Patterns and Precursors of Producers' Adaptations to the Cri-sis, in THE FARM FINANCIAL CRISIS: SOCIOECONOMIC DIMENSIONS AND IMPLICATIONSFOR PRODUCERS AND RURAL AREAS, supra note 20, at 13, 30.

23. Catherine Lerza & Michael Jacobson, Food for People, Not for Profit, in IsTHERE A MORAL OBLIGATION TO SAVE THE FAMILY FARM?, supra note 9, at 238, 241.

24. "Forward contracting" describes the agreement between farmers and corpo-rations, whereby the "conditions and volume of production as well as the price afterharvest are set in advance by food manufacturing and processing firms with grow-ers." The Embattled Independent Farmer, N.Y. TIMEs, Nov. 29, 1981, § 6, at 138. Insuch an arrangement, "the corporation does not become a farmer, it rents one." Id.

Agribusiness corporations have effectively subordinated formerly independentfarmers into tenant roles. Chicken processors, like Holly Farms and Safeway Foods,acquire "cheap human labor in the form of farmers who do the growing for them."Lerza & Jacobson, supra note 23, at 241. Decision-making authority moves off thefarm and into the hands of corporations. Kirkendall, supra note 10, at 93. Hogfarm-ing seems to be following the route of chicken-farming. Sharon Schmickle, A Barn-yard Dispute; Plan for Big, Businesslike Hog Operation is Criticized as Death ofFamily Farming, STAR TRIB., Feb. 10, 1992, at Al.

25. This price-fixing results in both lower prices paid to farmers and higherprices paid by consumers due to the elimination of competition. "[Slince processorsuse their contract prices with higher-volume farmers as the base price for all theircrop purchases, forward contracting tends to dictate commodity prices received by all

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buy farmers' products and distribute them to the consumer; mid-dlepeople withhold two-thirds of every dollar consumers pay forfarmers' food products. 26 Profits are further reduced by the grow-ing disparity between the prices farmers receive for their productsand the prices farmers pay corporate suppliers.27

The pressures placed upon family farmers by corporations arefurther intensified by the farm crisis which continues to destroyfamily farming. From the late 1970s until 1981, land prices rosewhile interest rates dropped.2s Banks willingly lent money to farm-ers because rising land prices provided excellent security for theloans. In fact, banks pressured farmers to borrow more than the

farmers, even those who do not grow under contract." Embattled IndependentFarmer, supra note 24.

When corporate domination eliminates competition, consumers end up payingmore, not less. Jim Hightower, The Case for the Family Farm, in Is THERE A MORALOBLIGATION TO SAVE THE FAMILY FARM?, supra note 9, at 205, 210. In 1981 the NewYork Times reported that "former Federal Trade Commission economist RussellParker has estimated that consumer overcharges because of diminished competitionin the food industry already approach 14 billion annually, or about $200 per family.Embattled Independent Farmer, supra note 24. The article described an example,using the peanut industry:

A recent example of how diminished competition can raise food pricesoccurred during [the 1980] peanut shortage. Processors and manufac-turers more than doubled the price of peanut butter to the consumereven though upwards of 90 percent of peanut farmers sold their cropsunder contract to the processors at the same price as the year before.

Id. To eliminate competition and acquire a monopoly, corporate farmers often sellproducts at a loss to undercut independent farmers and force them out of business.Catherine Lerza & Michael Jacobson, Food for People, Not for Profit, in Is THERE AMORAL OBLIGATION TO SAVE THE FAMILY FARM?, supra note 9, at 238, 242. Agribusi-ness corporations can afford to operate a division of its business at a loss for anextended period of time. But small farmers who specialize in producing cannot over-come such competition, resulting in their being forced out completely or into a con-tractual peonage operation. Id.

26. Hightower, supra note 25, at 207; CAROL GORMAN, AMERICA'S FARM CRIsis 45(1987). Dairy prices illustrate this principle. Dairy prices reached record highs in1989 after the "dairy buy-out." Sharon Schmickle, Dairy Farmers Soured on Declin-ing Prices, STAR TmB., Sept. 22, 1991, at 1A, 10A. But the same year, prices plum-meted to the lowest price paid to dairy farmers in over a decade. Id. However, theprice charged to consumers did not fall with the farmers' prices. Corporate mid-dlepeople absorbed the excess profits. Id. In January of 1985, $.77 of the $2.00 re-tail milk price per gallon went to middlepeople, which translates to 38.5% of theretail price. Id. In May of 1991, $1.38 of the $2.40 retail milk price per gallon wentto middlepeople, which translates to 57.5% of the retail price being swallowed bymiddlepeople. Id. In fact, during this period, although the retail price per gallonrose $.40, the price paid to farmers fell $.21. Id.

27. Since 1952, the price farmers receive for their food products increased onlysix percent, while prices charged to farmers for supplies rose 122% during the sameperiod. Hightower, supra note 25, at 207.

28. Land prices more than tripled their early 1970s values, and interest rates fellbelow 10 percent. Nancy Blodgett, A Day in America's Courts: Saving the FamilyFarm, A.B.A. J., Jan. 1, 1988, at 86, 89.

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farmer originally intended.29 Farmers were encouraged to expandin the midst of "a world food shortage and an export boom."30Farmers took advantage of banks' eagerness to lend, often using theloans to buy more efficient machinery. 31 This compounded their fu-ture problems by causing overproduction. The bubble of prosperityfinally burst in the early 1980s. Land prices plummeted, some-times to less than sixty percent of their peak value reached in 1981;crop prices also fell because production outpaced demand,32 and theexport growth collapsed.33

The current farm crisis remains particularly dangerous tofamily farms' survival because the farmers most likely to leavefarming are young farmers who run grain-producing, mid-sizedfarms. 34 Most family farmers are concentrated in these mid-sizedfarms.35 The average age of a farmer has climbed to fifty-two,while the number of farmers under age twenty-five has plunged. 36

As farmers retire, the number of replacements dwindles.37

As Part II demonstrates, the government passes many stat-utes aimed at preserving the family farm, thereby evidencing itsfirm support of this institution. Valid reasons underlie this sup-

29. See STRANGE, supra note 11, at 24 (describing lenders' refusals to loan moneyfor modest improvements, instead, encouraging farmers to make drastic, "progres-sive" changes).

30. Id. at 18. United States farmers welcomed increasing exports to China, theSoviet Union, Japan, Mexico, Venezuela, Indonesia, and most of the Middle Eastamong others. Id. at 18-19.

31. GORMAN, supra note 26, at 33.32. Blodgett, supra note 28, at 89.33. STRANGE, supra note 11, at 25. President Carter's grain embargo became a

popular source of blame, but even the Reagan administration concluded this eventwas not a prime reason for the export collapse. Id. at 25-26.

34. Steve H. Murdock et al., The Implications of the Current Farm Crisis for Ru-ral America, in THE FARM FINANCIAL CIsIs: SOCIOECONOMIC DIMENSIONS AND IMPLI-CATIONS FOR PRODUCERS AND RURAL AREAS, supra note 20, at 141, 157.

35. Id. at 158.'36. Secter & Shryer, supra note 19, at Al. "In short, the next generation of

would-be farmers ... are abandoning the land in droves." Id. The 1987 U.S. Censusof Agriculture showed

the average age of active farmers rose to 52, while the number of farm-ers under the age of 25 declined 43% in just five years and the numberbetween the ages of 25 and 34 fell 34% during the same time frame.Only about 1% were under 25 while nearly 30% were over 55 years ofage. What's more, there were nearly as many active farmers 70 or olderas there were those 34 or younger.

Id.37. During Senate Agriculture Committee hearings on Mike Espy's confirmation

as Secretary of Agriculture, Senator Grassley of Iowa stated, "[T]he farming popula-tion is aging. In my state, one-fourth of the farmers will be retiring in four years....We have 103,000 farming units in my state. Only 3,000 are led by farmers that areunder 30 years of age." Hearing of the Senate Agriculture Committee, FNS, Jan. 14,1993, available in LEXIS, Nexis Library, FNS File.

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port. Family farmers practice better soil conservation methodsthan nonfamily industrial farms. 38 Moreover, with the growth ofindustrial farming comes heavier reliance on chemical pesticidesand fertilizers, endangering people's health, in addition to erodingthe soil.3 9 Water resources are also irreparably harmed by indus-trial farming practices. 40 Industrial farms lack the personal link tothe land that inspires both valuable stewardship and better food. 4 1

Part II examines strengths and shortfalls of some of the most signif-icant measures passed to alleviate the family farm's plight.

38. A farm passed down in the family for many generations is cared for by thefarmer as if the land was another member of the family. Carol Hodne, We WhoseFuture Has Been Stolen, in Is THERE A MORAL OBLIGATION TO SAVE THE FAMILYFARm?, supra note 9, at 54, 54-55. Because farmers devote themselves to caring forthe land and preserving it to pass on to future generations, they practice extensiveconservation practices, such as crop rotation and terracing. Id. Nonfamily indus-trial farms, on the other hand, view land as a means to short-term profits, and thus,do not value conservation practices. Id. at 55.

39. Marty Strange, director of the Nebraska-based Center for Rural Affairs, ex-plained that as the number of farmers declines, causing farming to become less laborintensive, the more farming must rely on chemical pesticides and fertilizers. Secter& Shryer, supra note 19, at Al. He stated, "In the short-term there's mountains ofcorn but in the long term there's polluted ground water, increased soil erosion and alot of environmental problems that are the product of trying to have a technologysubstitute for human management and labor." Id.

"[L]arge-scale farms typically use herbicides and other chemicals poisons onmore than 30 percent of their acreage, compared with four percent used on smallerfarms." Embattled Independent Farmer, supra note 24. Some fear this damages thesoil's fertility. Id.

40. Industrial farms' heavy reliance on chemicals destroys precious waterresources:

According to the Nebraska Department of Health, eighty-one municipalwells in Nebraska - about one in five - are near or above tolerablelevels of contamination from nitrate-nitrogen. The principal sources ofnitrate pollution in groundwater in that state are agricultural chemi-cals and livestock wastes. In Iowa, environmental officials reckon thatup to half of that state's municipal water supplies are contaminatedwith pesticides or other synthetic organic chemicals. Perhaps mostalarming, the heavy increase in the use of fertilizer and pesticides inthe past thirty-five years has also been epidemiologically implicated inthe high rate of certain cancers among farmers.

STRANGE, supra note 11, at 42 (citations omitted).41. Family farmers share a unique relationship with their land.

It should not come as a surprise that the trend toward industrialagribusiness is accompanied by degradation of land and water re-sources. It is, after all, the stewardship of those natural resources thathas made agriculture different from industrial businesses, and it is thatdifference that is eroding. If agriculture is to be made over in the imageof industry, the way land and water are used will be changed. At theheart of the process of industrializing agriculture lie the changes in therelationship between people and land.

Id. This unique relationship between farmers and their land also leads to a higherquality of food. "The price, taste, and nutritional value of our own food supply de-pends on the farm family's willingness to plow a bit of itself into the land." Hodne,supra note 38, at 55.

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I. Congress' Farm Policies

The United States government has attempted to help the farmeconomy recover in a variety of ways. Although many of these pro-grams were promoted as saving the family farm, they actuallystrengthened the huge nonfamily corporate farms at the familyfarm's expense. Favorable government treatment contributes to in-dustrial farms' power, giving them a competitive advantage overfamily farms. This part explores how significant Congressionalmeasures affect family farms.

In 1946, the government passed the Farmers' Home Adminis-tration Act42 to meet the needs of "limited-resource farmers." The1946 act created the Farmers Home Administration (FmHA)43 tomake loans, grants, and advice available to farmers with the lowestfarming incomes. 44 However, recently the agency has been criti-cized for straying from this purpose.45

During the twentieth century the government sought to revi-talize the farm economy by reducing overproduction and insuringadequate commodity prices.46 Target price supports 47 and com-

42. Farmers' Home Administration Act of 1946, ch. 964, 60 Stat. 1062 (1946)(current version in 7 U.S.C. §§ 1001 note, 431-36 notes, 1010 note, 1030-1031, 1032a,12 U.S.C. §§ 84, 371 (1988)).

43. Id. §3.44. CATHERINE LERZA, SAVING THE FAMILY FARM 29 (1980).45. Congress called for an investigation into the lending policies of the FmHA,

led by North Dakota Senator Kent Conrad. Untitled, States News Service, Sept. 21,1989, available in LEXIS, Nexis Library, SNS File. A report from the General Ac-counting Office explained that lals policies shifted, FmHA became a government-subsidized free-for-all for large, corporate farms and private banks .... Small andmid-sized farms, often the hardest hit in an agricultural downswing, have practi-cally been left out. . . ." Id.

Statistics from the 1982 U.S. Bureau of the Census showed that in 1979 compar-atively wealthy farmers, with over $200,000 in gross sales, accounted for more of theFmHA's lending than the poorest farmers, with gross sales under $40,000. LutherTweeten, Has the Family Farm Been Treated Unjustly?, in Is THERE A MORAL OBLI-GATiON TO SAVE THE FAMILY FARM? supra note 9, at 212, 220. In 1979 farms withgross sales under $40,000 comprised sixty percent of all farms but only twenty-twopercent of FmHA lending. Id. In contrast, farms with gross sales of over $200,000comprised only seven percent of all farms but twenty-three percent of all FmHAlending. Id. Therefore, the FmHA extended more loans to wealthy farmers thanlimited-resource farmers. The midsize farms between these two extremes comprisedthirty-three percent of all farms, fifty-five percent of all FmHA lending. Id.

46. Some of these programs grew out of programs developed in the New Deal era.LEEzA, supra note 44, at 2. The Agricultural Adjustment Act, ch. 25, title I, §§ 1-22,48 Stat. 31 (1933) (codified as amended at 7 U.S.C. §§ 601-620, 623-624 (1988)),sought to reduce food production. Farmers were paid to decrease acreage used toplant crops and reduce their livestock. The government also provided price supportsfor the farmers. Farmers received loans for storing their crops as surplus with thegovernment. If market prices stayed below the loan price, farmers gave the govern-ment the crop as a loan repayment. GoRmAN, supra note 26, at 19-21.

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modity loan programs 48 were created for this purpose. However,these programs created a surplus of grain. In respouse, Congressdevised new programs to curb production by paying farmers to re-frain from farming some of their land.49

During the 1980s, Congress instituted a variety of measures tohelp the farm economy, some specifically aimed at helping the fam-ily farmer. The effect of these measures varied. In 1986, the gov-ernment instituted the "dairy buy-out,"5o attempting to reduce milkproduction by encouraging dairy farmers to sell their herd and stopmilking in exchange for payments. 5 l While the program initiallycreated higher prices, dairy prices have since crashed to a shockinglow. 5 2

Many of these efforts, promoted as helping the family farmer,actually do more to strengthen large, nonfamily industrial farms.53

However, the family farmer continues to be "used" to pass these

47. Target price support programs attempted to reduce over-production, therebyincreasing prices. The USDA administered the program. If farmers refrained fromplanting a required percentage of their acreage, they became eligible for target pay-ments. Target prices were predetermined prices set by the government. If the mar-ket price remained lower than the target price, the government paid the farmer thedifference between the two prices. LERZA, supra note 44, at 2.

48. Commodity loans involved the government offering a loan to farmers forspecified commodities. The farmer exchanged the crops for the loan. If the farmercould receive a higher price in the open market, the farmer sold the crop and repaidthe loan with interest. Otherwise the farmer kept the loan and gave the crops to thegovernment as repayment. The government retained the crops as surplus crops. Id.

49. This legislation included "set aside" and "idling" programs. GoPmAN, supranote 26, at 51. Under the "set aside" program, farmers had to set aside ten percent oftheir land used for corn and fifteen percent of their land used for wheat. However,because few farmers signed up for the program, surpluses continued to increase andprices fell further. Id. A similar program, called the Payment in Kind (PIK) pro-gram, involved "idling" acres by not planting crops on them and giving some surplusgrain to farmers. Id. at 52. If farmers set aside ten to thirty percent of their cropacreage, in addition to land already idled for price supports, the government wouldgive them some of its surplus crops. The farmers could then dispose of the crops asthey wished. Id.

50. LUTHER TWEETrN, FARM PoLcY ANALYsis 343 (1989).51. To participate in the program, milk producers submitted bids for milk prices

that they would be willing to accept in exchange for agreeing to quit milking for fiveyears. If their bid was accepted, farmers were paid by the dairy industry and thegovernment not to milk, based on the volume of their past milk production. SusanSkorupa, Cast-off Cows Create Problems for Dairies and Ranches, RocKY MTN. Bus.J., Apr. 28, 1986, at 3.

52. Schmickle, supra note 26.53. Family farmers acquire only a small portion of the billions of dollars the gov-

ernment claims it spends on their behalf. The government awards income and price-support payments based on volume and acreage, essentially favoring large size andtherfore, giving the most money to farmers least in need of the financial help. Hight-ower, supra note 25, at 208.

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programs through Congress. 54 Congress' programs encouragefarmers to iicrease their farms' size. Such expansion is "artificial"in that true market forces do not otherwise warrant such growth.In fact, smaller farms have repeatedly been proven more efficientthan large farms.55 "[F]arm programs, tax rules, credit services,and other instruments of public policy are weighted to seduce indi-vidual farmers to expand."5 6 The target price supports, commodityloan programs, and set aside programs reward the largest farmswith the biggest sales, thereby giving farmers "artificial" incentivesto expand. Although Congress instituted limits on payments, theselimitations failed to achieve their objectives.57

In addition to the programs previously discussed, Congressproposed two significant farm acts during the 1980s, but only onebecame law. The Save the Family Farm Act,5 8 sponsored by Sena-

54. When debating the worth of government programs aimed at farmers, thesmall family farmer is used to justify such aid. However, as Diane Sawyer appropri-ately queried, "[W]ho are we kidding? Three-quarters of the subsidies, and most ofthe regulations, help the biggest farmers and big business. . . ." Prime Time, Live:Ballooning Bureaucracy (ABC television broadcast, January 21, 1993), available inLEXIS, Nexis Library, ABCNEW File.

55. A study of Iowa farms from 1976-83 concluded that small farms of 100 to 179acres get more output per dollar invested than do the large farms in Iowa. STRANGE,supra note 11, at 98. "In fact, the larger the farm the lower the output per dollarinvested." Id. When examining output per dollar at direct cash expenses, medium-sized farms of 260-359 acres are the most efficient, not large farms. Id. These re-sults were confirmed by a 1985 Congressional Budget office study, id. at 99, and bytwo USDA studies. A 1967 USDA report, entitled The Economics of Scale in Farm-ing, declares farms run by one or two persons to be at least equally, and often more,efficient than large industrial farms. Lerza & Jacobson, supra note 23, at 242. An-other USDA report submitted to a U.S. Senate subcommittee drew similar conclu-sions. The report concluded the optimum size for a vegetable farm in California was440 acres, but corporate farms dominating vegetable farming in California possessan average of 3,206 acres. Hightower, supra note 26, at 207.

56. STRANGE, supra note 11, at 127.57. Congress instituted the limitation in 1970. Id. at 128. In the 1960s the big-

gest 20% of farms received over half the benefits of most commodity programs, whilethe smallest 40% received less than 10% of the benefits. Id. But the limitations didnot rectify this problem. The initial limit of $50,000 limited virtually no one, lowerlimits were avoided by artificially splitting farms into smaller farms, and when bigfarmers became eligible in 1983 for enormous cash payments in addition to surpluscommodities, "the Reagan administration arbitrarily suspended the payment limita-tion in crops paid in kind." Id. at 129.

58. S. 2069, 99th Cong., 2d Ses. (1986). The Save the Family Farm Act soughtto reduce overproduction and increase the influence of family farmers' voices in cre-ating farm programs. A nationwide farm referendum, including producers of all themajor commodities, would be held to allow farmers to choose the type of farm pro-gram they want. When a referendum would pass, farmers would set aside 15% oftheir tillable acres (to reduce overproduction). If greater set aside was required, pro-ducers with gross incomes exceeding $200,000 would set aside a greater percentageof their land. This was intended to create a disincentive to conglomerate and tax-loss ventures. Tom Harkin, The Save the Family Farm Act, in Is THERE A MORALOBLIGATION TO SAVE THE FAMILy FARM, supra note 9, at 388, 394.

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tor Tom Harkin of Iowa, failed to pass. In contrast to other govern-mental efforts, the Save the Family Farm Act sought to help onlyfamily farmers. Its purpose was to move control of farm policy fromagribusiness-dominated Washington59 to a national farmer referen-dum, giving one farmer one vote, thereby permitting farmers to cre-ate their own farm programs.6 0

The other legislative effort, the 1985 Farm Bill, passed andbecame the Food Security Act of 1985.61 The Senate Report for theact states that the purpose of successful farm policy is to introducepredictability into the otherwise unpredictable farming business. 62

The act sought to accomplish its goals by reducing loan rates andfreezing target commodity rates for two years. 63 Significantly, theact forged a new trail in emphasizing environmentalism by condi-tioning subsidies on better land stewardship.6 4

59. The federal agencies designed to regulate farming, the United States Depart-ment of Agriculture (USDA) and the Food and Drug Administration (FDA), havebeen run by officials closely tied to agribusiness interests, as evidenced by thenumber of agency officials that serve as corporate officials before and after theiragency tenure. Lerza & Jacobson, supra note 23, at 243-44.

A 1969 congressional report revealed that thirty-seven of forty-nine top FDAofficials who departed from the agency went to work for major food and drug corpora-tions. Id. at 244.

In 1974, Virgil Wodicka, director of the Bureau of Foods, quit to becomea private consultant to industry; prior to his five-year sojourn withFDA, Wodicka worked for Ralston Purina; Libby, McNeill and Libby;and Hunt-Wesson (where he was vice president). The nutrition directorof the FDA also left his post in 1974 and joined the Hershey Corpora-tion. In prior years, the same pattern was repeated. The FDA's generalcounsel previously represented IT1-Continental Baking, dairy inter-ests, and the chewing gum industry. The man he replaced as generalcounsel, William Goodrich, left the FDA to become the president of theInstitute of Shortening and Edible Oils, an industry lobby. The manGoodrich replaced was a former assistant commissioner of the FDA.

Id.As the following situation. illustrates, the situation at USDA has been similar to

that of the FDA:The secretary of agriculture from 1971 to 1976, Earl Butz, was formerlya director of several agribusiness corporations including Ralston Purinaand Stokely Van Camp. Several of the top officials in USDA jumpedship in the early seventies for the lusher environs of Continental Grain,Miles Laboratories, and other corporations. In 1985 Ronald Reagan ap-pointed Richard Lyng as secretary of agriculture. Lyng was formerly amember of the National Livestock and Meat Board.

Id.60. Harkin, supra note 58, at 392.61. Pub. L. No. 99-198, 99 Stat. 1354 (codified as amended mostly in scattered

sections of 7 U.S.C., 21 U.S.C. and 46 U.S.C.).62. S. REP. No. 145, 99th Cong., 1st Sess. 1 (1985), reprinted in 1985

U.S.C.C.A.N. 1676, 1676.63. GoZmAN, supra note 26, at 62.64. The 1985 act required farmers who received crop subsidies from the USDA to

develop and use a conservation plan for land designated as erodible. Who's in con-trol?, BiLuNGs GAZETTE, Apr. 26, 1992, at F12. This marked the first time farmers

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Although many proponents of the 1985 act thought it wouldreduce government involvement in commodity markets, critics be-lieve this did not happen.6 5 However, some in Washington declaredthe 1985 act a success, including President Bush.66 The 1985 actexpired in 1990, but Congress passed a successor.6 7 The 1990 actpreserved the environmental commitment of the 1985 act by contin-uing conservation techniques.6 8

could not receive subsidies without taking better care of their land. John Lancaster,Study Says Soil Service Lags on Conservation; Enforcement of 1985 Measures Lack-ing, WASH. PosT, Apr. 22, 1991, at A7. "The idea was to use benefits as an incentivefor the control of erosion and other ecological change." Id. However, there have beensignificant problems with enforcement of these measures. Id. Under the act, farm-ers were given ten years to implement these plans to control soil erosion on landconsidered highly erodible, which encompasses one-third of the Midwest's farmland.George Gunset, Farmers' Annual Ritual: Spring Gamble Tillers of Soil Ponder Waysto Reap Greatest Returns, Cm. TRIB., Apr. 12, 1992, at 3C.

65. Darrel Good, University of Illinois Cooperative Extension Service marketingspecialist, stated that this hope failed to materialize: "The government is no longerin the grain storage business, but is a major determinant of export demand." WeeklyOutlook - Soviet Grain Demand, UPI, Sept. 11, 1991, available in LEXIS, Nexis Li-brary, UPI File. Texas Agricultural Commissioner Jim Hightower echoed this cyni-cism by proclaiming that despite Washington's proclaimed success of the 1985 act,the bottom line revealed that the bill failed to help farmers since their share of theconsumer's food dollar shrank.

"Despite all the hubbub coming out of Washington proclaiming that the1985 Farm Bill is a success, the truth is farming is still a losing proposi-tion," said Hightower. The commissioner said food industry profits con-tinue to rise while the farmers' share of the consumer food dollarcontinues to fall. Texas farmers will earn only 2.8 cents for producing asingle serving of a 1989 Thanksgiving dinner that includes that in-cludes turkey and all the trimmings, a government study said Tuesday.

Single Thanksgiving Meal Earns Texas Farmer 2.8 Cents, UPI, Nov. 14, 1988, avail-able in LEXIS, Nexis Library, UPI File. Iowa Senator Tom Harkin echoed this sen-timent: "If you talk about just putting some money in the farmers' pockets, I guessyou could say the '85 farm bill worked, but we borrowed a lot of money to do it. If youlook at it from the standpoint of what's happening in rural America, it hasn'tworked." Untitled, UPI, Aug. 17, 1989, available in LEXIS, Nexis Library, UPI File.

66. President Bush declared the 1985 act a success when he signed its successor."Bush boasted that the new agriculture policy law 'builds on the success of the 1985farm bill ... .'" President Bush signs New Five-year Farm Policy Bill, [1990] DailyRep. for Executives (BNA) No. 230, at A-8 (Nov. 29, 1990). While a member of theSenate Agriculture, Nutrition, and Forestry Committee, Rudy Boschwitz of Minne-sota stated that a General Accounting Office report underscored the 1985 act's suc-cess. GAO Cites 1985 Farm Bill as Contributor to Improved U.S. Farm Economy,[1989] 6 INT'L TRADE REP. (BNA) No. 15, at 448 (Apr. 12, 1989). Boschwitz cited thebill's assistance in recapturing export markets for U.S. farmers. Id.

67. Food, Agriculture, Conservation, and Trade Act of 1990, Pub. L. No. 101-624,104 Stat. 3359 (codified as amended in scattered sections of 7 U.S.C., 12 U.S.C., and16 U.S.C.).

68. Wetlands Focus of Farm Conservation Effort, UPI, Jan. 18, 1991, available inLEXIS, Nexis Library, UPI File. However, the 1990 act actually improves the envi-ronmental provisions by introducing a "sense of permanence" ensuring that the con-servation techniques outlast the act itself. Purdue Experts Look at New Farm Bill,UPI, Nov. 28, 1990, available in LEXIS, Nexus Library, UPI File.

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Despite Congress' efforts to bolster and stabilize the farmeconomy, many family farmers face bankruptcy and the loss of theirlivelihoods. Recognizing this, Congress passed perhaps the mostsignificant legislation for the family farm: the Chapter 12 bank-ruptcy act.6 9

Bankruptcy Law and the Family Farm

Before Chapter 12, farmers in need of bankruptcy protectionhad to choose from Chapter 7: Liquidation,70 Chapter 11: Reorgani-zation,71 and Chapter 13: Adjustment of Debts of an IndividualWith Regular Income. 72 For various reasons, these chapters failedto meet farmers' bankruptcy needs. The shortcomings of Chapters7, 11, and 13 will be addressed in order.

Chapter 7 requires liquidation of the debtor estate's propertyby a bankruptcy trustee. 73 Creditors can initiate an involuntaryChapter 7 bankruptcy against a debtor, which posed a severe disad-vantage for farmers before 1986.74 Due to the forced liquidation,Chapter 7 works well for debtors with much unsecured or under-secured debt and few valuable assets. However, farmers dislike liq-uidation of their assets. Most farmers wish to continue farming byreorganizing their debts. If they lose their land, they lose their live-lihood. Moreover, many farmers hate to lose land passed down inthe family for generations. Hence, many farmers find Chapter 7inadequate.

If the farmer must liquidate, a liquidating reorganizationunder Chapters 11 or 13 works better for farmers than a Chapter 7liquidation.75 While a Chapter 7 liquidation occurs rapidly under

69. Bankruptcy Judges, United States Trustees, and Family Farmer BankruptcyAct of 1986, Pub. L. No. 99-554, 100 Stat. 3088 (codified as amended at 11 U.S.C.§§ 1201-1231 (1988)).

70. 11 U.S.C. §§ 701-766 (1988).71. Id. §§ 1101-1174.72. Id. §§ 1301-1330.73. Id. § 704(1). After the trustee reduces the property to money, the trustee

distributes the money to satisfy unsecured creditors' claims in a prioritized fashion.Id. § 726.

74. Id. § 303. Currently, the bankruptcy code exempts "farmers" and "familyfarmers" from involuntary bankruptcies. Id. § 303(a). However, before the enact-ment of Chapter 12 in 1986, the bankruptcy code exempted only "farmers" from in-voluntary bankruptcies. Since the statutory definition of "farmer" eliminates manyfamily farmers, many farm debtors were susceptible to involuntary bankruptciesbefore 1986. To be a "farmer," over 80% of such person's gross income must comefrom a farm owned or operated by the person. Id. § 101(19). On the other hand, tobe a "family farmer," only over 50% of such person's gross income must come fromthe farming operation. Id. § 101(17).

75. JOHN C. ANDERSON & JEFFREY W. MORRIS, CHAPrER 12 FARM REORGANIZA-TIONS § 1.01, at 1-4 (1987).

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trustee supervision, a reorganization liquidation progresses in anorderly manner supervised by the debtor-farmer.76 Debtor supervi-sion can work better for farmers with a financial stake in the farmbecause they tend to know more about the property and have moreincentive than trustees to try to satisfy the creditor's claim. 77

Unlike Chapter 7, Chapter 11 allows the debtor to remain inpossession of the property. 78 Chapter 11 is rehabilitative, allowingdebtors to submit a plan of reorganization to work out their debtproblems.7 9 The debtor in possession is permitted to assume therole of trustee.8 0 Courts appoint a trustee under Chapter 11 onlyunder limited circumstances. 81

Like Chapter 7, Chapter 11 is available to all forms of busi-ness organizations, as well as individuals.82 An involuntary Chap-ter 11 bankruptcy is possible, as with Chapter 7, which seriouslyaffected some farmers before 1986.83 However, the Chapter 11debtor possesses the exclusive right to file the reorganizationplan.8 4 After the debtor files the plan, the creditors must decide

76. Id.

77. Id. Because farmers work with farm equipment and have bought it them-selves, they know more about its worth and how to receive the highest price. Somefarmers with a financial stake in the farm have greater incentive to receive a higherprice since they hope to pay off the debts and have money left for themselves. Somewish to pay the debts off as a matter of pride.

78. Originally, Congress devised Chapter 11 to provide a remedy for businesspe-ople, allowing them to continue their businesses. DANIEL R. CowANS, CowANs BANK-RUPTCY LAw AND PRACTICE § 20.1 (1987).

79. Id. After bankruptcy is filed, the debtor proposes a plan of repayment for thedebts. The plan allows the debtor to continue the business, using the business' in-come to make payments under the plan.

80. 11 U.S.C. § 1107 (1988). The bankruptcy code gives the debtor in possessionall the rights available for trustees to administer an estate, except for the right tocompensation. These rights include the right to continue operating the debtor's busi-ness; to sell, use, or lease the debtor's property in the ordinary course of business; tosell the estate's property free and clear of any liens outside the ordinary course ofbusiness; to obtain credit; to reject, affirm, and assign executory contracts; and tobring actions. JOHN C. ANDERSON, CHAPTER 11 REORGANIZATIONS § 8.03, at 8-5(1992) (footnotes omitted).

81. The "court shall order the appointment of a trustee - (1) for cause, includingfraud, dishonesty, incompetence, or gross mismanagement.., or (2) if such appoint-ment is in the interests of creditors, any equity security holders, and other interestsof the estate .... " Id. § 1104(a).

82. 11 U.S.C. § 109(b) (1988). Only stockbrokers or commodity brokers are ex-cluded. Id.

83. See supra note 74 and accompanying text.

84. This occurs within 120 days of commencement of the action, unless the courthas appointed a trustee. 11 U.S.C. § 1121 (1988).

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whether to accept it.85 After the creditors' decisions, the court de-cides whether to confirm the plan.8 6

Even if some creditors reject the reorganization plan, the courtcan still confirm it if at least one class of impaired claims confirmsthe plan.8 7 This confirmation over creditors' objections is called"cramdown." Before the court will confirm a reorganization planover creditors' objections, the plan must be "fair and equitable," re-quiring that creditors receive the present value of their claim.8 8

Because creditors need only receive the present value of their se-cured interest under the cramdown provision, creditors' claims can,in effect, be written down to the value of the collateral. The creditorhas an unsecured claim for the balance, but this, as a practical mat-ter, is written off.

Unsecured creditors must receive the "value, as of the effectivedate of the plan, equal to the allowed amount of such claim."89 Un-secured creditors must receive payment in full before junior claim-ants receive anything, which is known as the absolute priorityrule.9 0 This rule makes it hard for farm debtors to retain theirfarms because the farmer is an equity holder whose claim remainsjunior to the unsecured creditors' interests.9 1 Consequently, if thecreditors reject the farmer's plan, Chapter 11 does not provide

85. Id. § 1126. Under Chapter 11, the debtor must submit a disclosure state-ment providing sufficient information for the creditor to make a knowledgeable deci-sion. Id. § 1125. A class of claims accepts a plan if creditors holding "at least two-thirds in amount and more than one-half in number of the allowed claims" accept theplan. Id. § 1126(c). Unimpaired creditors are presumed to accept the plan. Id.§ 1126(f). § 1124 describes when claims or interests are considered "impaired."

86. Id. § 1129.87. Id.88. A plan accepted by less than every class can only be confirmed if the follow-

ing two requirements are met: (1) the plan cannot discriminate unfairly betweenclasses and (2) the plan must be fair and equitable. Id. § 1129(b)(1). § 1129(b)(2)describes the requirements for a plan to be fair and equitable with respect to thevarious classes of creditors. To be "fair and equitable" to undersecured secured cred-itors, the creditors must receive the "value, as of the effective date of the plan, of atleast the value of such holder's interest in the estate's interest in such property." Id.§ 1129(b)(2)(A)(i)(II).

89. Id. § 1129(b)(1)(B).90. Id. § 1129(b)(2XB)(ii). Junior claimants are those creditors paid after a par-

ticular class of creditors. For example, because unsecured creditors are paid aftersecured creditors, unsecured claimants are considered junior claimants with respectto secured claimants.

91. An equity holder includes anyone owning a portion of the business: share-holders of a corporation, partners in a partnership, and any owner of a business.Hence, farmers are equity holders. The only way for equity holders to retain theirinterest is to pay everyone ahead in full (to meet the rule of absolute priority) or geteveryone ahead of them to vote yes to a plan that allows them to be paid withouteveryone ahead being paid in full (because § 1129(bX1) requirements do not have tobe met with respect to classes accepting the plan). Id. § 1129(bXl).

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enough help to farmers. Thus, besides its complexity, Chapter 11does not always result in a plan that helps farmers survive bank-ruptcy while keeping their farms intact.

Like Chapter 11, Chapter 13 is rehabilitative in nature andrequires a reorganization plan.92 Chapter 13 also has a cramdownprovision similar to Chapter 11's. 93 Hence, the reorganization planneed not be accepted by unsecured creditors to be confirmed. Afteran unsecured creditor objects, the court may approve the debtor'splan if the creditor receives the present value of the claim, or thedebtor pays all of his or her disposable income into the plan forthree years.9 4 Hence, Chapter 13 eliminates Chapter l1's absolutepriority rule.95

Unlike Chapters 7 and 11, Chapter 13 may not be used bypartnerships or corporations, only by individuals with regular in-come. 9 6 Chapter 13 does not permit involuntary bankruptcies sinceonly the debtor can file.97

Besides the fact that only the debtor can file a Chapter 13plan, the main advantages of Chapter 13 for farmers are its simplic-ity, low cost, and easier confirmation.9 8 Farmers can also obtain aco-debtor stay under Chapter 13 to protect family and friends whoco-signed for consumer debts.99 Unfortunately, Chapter 13's debtlimits and exclusion of partnerships and corporations prevent manyfamily farmers from utilizing Chapter 13's benefits. 0 0

Chapter 12 bankruptcy was created specifically for familyfarmers due to the other chapters' failure to adequately protect

92. Id. § 1322.93. Id. § 1325(b).94. Id. § 1325(b)(1).95. See supra notes 90-91 and accompanying text.96. The bankruptcy code states that "[oinly an individual with regular income

that owes... unsecured debts of less than $100,000 and ... secured debts of lessthan $350,000' may use Chapter 13. Id. § 109(e). The code defines an individualwith regular income as an "individual whose income is sufficiently stable and regu-lar to enable such individual to make payments under a plan under Chapter 13 ofthis title, other than a stockholder or commodity broker." Id. § 101(29).

97. Id. § 1321. This benefitted many farmers before 1986 who were subject toinvoluntary bankruptcies because they did not fit the statutory definition of"farmer." See supra note 74.

98. Jeffrey L. Dull, Comment, Bankruptcy Chapter 12: How Many Family FarmsCan It Salvage?, 55 UMKC L. REv. 639, 653 (1987).

99. Chapter 13 provides a stay of action against co-debtors for "consumer debts."11 U.S.C. § 1301 (1988).

100. A Chapter 13 debtor must be an individual. See supra note 96. However,many family farms are organized as family partnerships or family corporations.Moreover, Chapter 13 debtors must have less than $100,000 in unsecured debts andless than $350,000 of secured debt, amounts easily exceeded by current costs offarmland and farm equipment. Id.

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family farmers' interests.10 1 Before Congress enacted this chapter,no provisions in the bankruptcy code specifically helped farmerseven though they encounter unique financial difficulties.' 0 2 Con-gress enacted Chapter 12 on a trial basis, as evidenced by its sun-set, or self-destructive, provision which states that Chapter 12 willexpire on October 1, 1993 if Congress fails to reenact it.103 Con-gress limited the chapter to family farmers;104 hence, agribusinesscorporations cannot take advantage of its leniency.

One of the significant changes incorporated into Chapter 12 isthe new definition of "adequate protection." As with the other chap-ters, under Chapter 12 a creditor can lift the automatic stay' 0 5 im-posed by bankruptcy if the creditor's interest in the property is notadequately protected. .0 6

Under the other chapters, courts' interpretation of "adequateprotection" caused a major problem for farmers. Chapter 12 soughtto change the definition by eliminating the other chapters' require-ment that a debtor compensate the creditor for "lost opportunity

101. Chapter 12 became effective on November 26, 1986. The conference commit-tee report states that most family farmers acquired too much debt to qualify forChapter 13 and thus, were forced to use Chapter 11, which many farmers found toocomplex and expensive. H.R. CoNF. REP. No. 958, 99th Cong., 2d Sess. 48 (1986),reprinted in 1986 U.S.C.C.A.N. 5246, 5249. Because of the farm crisis, Congressdrafted the new chapter to protect farm debtors.

[Chapter 12] is designed to give family farmers facing bankruptcy afighting chance to reorganize their debts and keep their land. It offersfamily farmers the important protection from farm creditors that bank-ruptcy provides while, at the same time. preventing abuse of the systemand ensuring that farm lenders receive a fair repayment.

Id. Congress enacted the new chapter specifically to help family farmers deal withbankruptcy. Id.

102. Some of these risks result from the weather, inflation, and the economy.Dull, supra note 98, at 642. Another unique risk farmers experience concerns harmto animals. Paul C. Rosenblatt, FARMING IS IN OUR BLOOD: FARM FAMILIES IN Eco-NOMIC Cimis 37 (1990). Furthermore, the farmer's illness poses a particularly greatthreat to farming since the farmer's labor is essential to the business and cannot beeasily replaced for financial reasons and otherwise. Id. at 36. This health risk isaggravated by the fact that farming remains one of the most dangerous occupationsin America. Sharon Schmickle, Bucolic Image Belies Farm Accident Rate: EachYear, 1 in 7 Farms is Scene of Serious Injury, STAR TRIB., Jan. 18, 1992 at IA.

103. Act of Oct. 27, 1986, Pub. L. No. 99-554, § 302(f), 100 Stat. 3088, 3124 (1986).The drafters stated that the sunset provision was included because "Congress willwant to evaluate both whether the chapter is serving its purpose and whether thereis a continuing need for a special chapter for the family farmer." H.R. CoNF. REP.

No. 958, 99th Cong., 2d Sess. 48 (1986), reprinted in 1986 U.S.C.C.A.N. 5246, 5249.104. 11 U.S.C. § 101(19) (1988).105. As soon as a petition for bankruptcy is filed under §§ 301, 302, or 303, of the

bankruptcy code, an automatic stay is imposed on actions of the creditor. Id.§ 362(a). This stay prevents creditors from pursuing action against the debtor, thedebtor's property, or the debtor estate's property to satisfy creditors' claims or en-force their liens.

106. Id. § 362(dX1).

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costs."107 Chapter 12 protects the value of the collateral, not thecreditor's interest in the collateral.OS Eliminating "lost opportu-nity costs" illustrates Congress' Chapter 12 policy of favoring thefarm debtor because it places the burden of "lost opportunity costs"on the lender. This reduces litigation costs, allowing family farmdebtors to concentrate on preparing a reorganization plan.X0 9

Another aspect of Chapter 12 benefitting farmers allows thetrustee to sell property without the creditor's consent.1 1 0 Chapter12 also continued Chapter 13's elimination of the absolute priorityrule in cramdown.111 As in Chapter 13,112 an unsecured creditorcannot prevent confirmation of a reorganization plan if the debtoruses his disposable income to satisfy the plan for a specified

107. The legislative history states the following:The Fourth and Ninth circuits have held that adequate protection re-quires the debtor to compensate the secured creditor for so-called "lostopportunity costs" in those cases where the value of the collateral is lessthan the amount of debt secured by the collateral. In re American Mar-iner Industries, Inc., 734 F.2d 426 (9th Cir. 1984); Grundy NationalBank v. Tandem Mining Corp., 754 F.2d 1436 (4th Cir. 1985). The pay-ment of lost opportunity costs requires the periodic payment of a sum ofcash equal to the interest that the undercollateralized secured creditormight earn on an amount of money equal to the value of the collateralsecuring the debt.

Lost opportunity costs payments present serious barriers to farmreorganizations ... Family farmers are usually unable to pay lost op-portunity costs.

H.R. CoNF. REP. No. 958, 99th Cong., 2d Sess. 49 (1986), reprinted in 1986U.S.C.C.A.N. 5246, 5250. Lost opportunity costs compensate creditors for invest-ment opportunities creditors could have taken using the foreclosure proceeds, butwhich are lost due to the delayed foreclosure.

108. See 11 U.S.C. § 1205(a) (1988). § 1205(a) states that § 361 "does not apply ina case under this chapter." (§ 361 defines "adequate protection" for the other bank-ruptcy chapters.) § 1205(b) defines "adequate protection" under Chapter 12. Mostsignificantly, § 1205(b)(1) inserts the phrase "value of property securing a claim or ofan entity's ownership interest in property" in place of § 361(1)'s phrase "value ofsuch entity's interest in such property." In § 1205(bX4), the aforementioned "valueof property phrase" is inserted in place of § 361(3)'s "indubitable equivalent of suchentity's interest in such property." These phrase replacements illustrate that Chap-ter 12's drafters sought to change the focus from adequately protecting the creditor'sinterest in the property, to instead, protect the collateral's value.

109. H.R. CoNF. REP. No. 958, 99th Cong., 2d Sess. 50 (1986), reprinted in 1986U.S.C.C.A.N. 5246, 5251.

110. 11 U.S.C. § 1206 (1988). The legislative history states that the provision'spurpose is to allow farm debtors to "scale down the size of their farming operationsby selling unnecessary property." H.R. CoNF. REP. No. 958, 99th Cong., 2d Sess. 50(1986), reprinted in 1986 U.S.C.C.A.N. 5246, 5251. This provision avoids the dead-lock that had been occurring under Chapters 11 and 13 between creditors seeking todispose of land and equipment and creditors who thought they could get higherprices by disposing of it themselves. David K McPhail, Bankruptcy: Determinationof an Appropriate Cram-down Interest Rate for the Family Farmer, 41 OKLA. L. REv.489, 491 (1988).

111. See supra notes 90-91, 95 and accompanying text.112. See supra note 94 and accompanying text.

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number of years. 113 However, under Chapter 12 the debtor mayhave to contribute his income for a longer period of time: anywherefrom three to five years. 114

The possibility of paying a debtor for longer than three yearsis one aspect of Chapter 12 favoring creditors. Certain provisionswere added to balance Chapter 12 with respect to creditors' con-cerns. 115 For example, untimely filing results in a dismissal andprevents refiling. 1l 6 Fraud can also result in a dismissal or conver-sion to Chapter 7.117

Changes in the bankruptcy code and continuing governmentinvolvement in farm-oriented legislation illustrate our govern-ment's intent to preserve the family farm.' 18 The government hasestablished many programs and statutes to help the family farmerthrough the farm crisis. However, since these programs sometimesstray from their goals, courts must accept responsibility in imple-menting Congress' express policy of helping family farmers. Wheninterpreting these statutes, courts must remember the purpose ofthe statute. Interpreting present "value" in Chapter 12's cramdownprovision presents an opportunity for courts to read the statute'splain language in light of the statute's purpose, as Part IV explains.But first, Part III illustrates the ambiguity of present "value" byexamining the variety of ways courts have interpreted the phrase.

III. The Courts' Interpretation of the Cramdown InterestRate

Courts have used a number of methods for determining whatrepresents the present "value" of a secured claim under thecramdown provisions of the bankruptcy code. The Fisher courtused the market rate of the loans to compute the claims' present"value".119 Because the Fishers qualified for special FmHA loans

113. 11 U.S.C. § 1225(b)(1) (1988).114. Under Chapter 12 the judge has discretion to approve payments for more

than three years but less than five years. Id. § 1222(c).115. McPhail, supra note 110, at 491.116. 11 U.S.C. § 1208(cX3) (1988). E.g., In re Braxton, 121 B.R. 632 (Bankr. N.D.

Fla. 1990).117. 11 U.S.C. § 1208(d) (1988). E.g., Reinbold v. Dewey County Bank, 942 F.2d

1304 (8th Cir. 1991).118. In fact, during the Senate Agriculture Committee hearings on the confirma-

tion of Secretary of Agriculture Michael Espy, the chair of the committee, SenatorPatrick Leahy, reiterated Congress' commitment to the small, family farm. "[W]ehave to be committed to rural America. It can wait no longer. If we lose our smallfamily farms, we lose not only our rural heritage but the economic strength of ourrural communities." Hearing of the Senate Agriculture Committee, supra note 37.

119. The court of appeals remanded to the lower court the determination of this"market rate." In re Fisher, 930 F.2d 1361, 1364 (8th Cir. 1991).

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with low interest rates for limited-resource farmers, the Fishers ac-tually owed more after filing for bankruptcy than before. There-fore, the court's determination of present value penalized theFishers for using a special Congressional enactment, Chapter 12,designed expressly to help family farmers manage their debts.Such a result contradicts Chapter 12's purpose.

Courts can choose from a variety of interest rates when deter-mining the present value of claims under the bankruptcy code'scramdown provisions. One option is to take a preexisting rate, cre-ated for another situation, and apply it to the bankruptcy case. Forexample, some courts have applied the federal tax rate used by theInternal Revenue Service to charge taxpayers for unpaid tax liabili-ties.120 Another possibility is a statutory interest rate designed forcivil judgments.121 Other courts use a judgment rate as a startingpoint, adding a premium to compensate for risk.122

Courts have also borrowed other lenders' interest rates, apply-ing them to the bankruptcy context. Some courts apply the con-sumer loan contract rate prevailing in the market when thebankruptcy plan took effect.123 Other courts use the prime ratecommercial lenders quote to business borrowers,124 sometimes ad-ding a risk factor to compensate for added risk.125 Another popularrate is the treasury rate at which the government competes in themoney market with other borrowers.126 Courts have also held thatthe rate should be determined uniquely in each case, based on the

120. In re Ziegler, 6 B.R. 3, 6 (Bankr. S.D. Ohio 1980). The court used the rateestablished by the Internal Revenue Code, 26 U.S.C. § 6621. The court consideredthe rate "reasonably responsive to current economic conditions" since it was "subjectto periodic revision," and the court thought using the rate did not impose "an unfairburden on Chapter 13 debtors." Id.

121. In re Crockett, 3 B.R. 365, 368 (Bankr. N.D. Ill. 1980). The court consideredthe current legal rate of interest to be the proper rate to compensate the creditor fordelayed payments. Id.

122. In re Lum, 1 B.R. 186, 188 (Bankr. E.D. Tenn. 1979). The court examinedthe judgment rate of 8% and arbitrarily added 2% to accomodate the creditor's inter-ests. Id.

123. In re Benford, 14 B.R. 157, 160 (Bankr. W.D. Ky. 1981). The court chose theprevailing market rate for consumer loans on the date the plan takes effect since it is"responsive to changing economic conditions, yet provides ... a reasonably certainand uniform method for calculating the long-term equivalent of a claim's presentvalue." Id.

124. In re Hudock, 124 B.R. 532, 534 (Bankr. N.D. Ill. 1991). The court chose theprime rate since it represented the borrower's cost of money, permitting "the marketto make the necessary risk assessment." Id.

125. In re Patterson, 86 B.R. 226, 228-29 (Bankr. 9th Cir. 1988). The court fa-vored adjusting the prime interest rate for bankruptcy loans to reflect the addedrisk. Moreover, the court held that because prime rate is generally lower than mar-ket, a higher risk factor can be used. Id.

126. U.S. v. Doud, 869 F.2d 1144, 1146 (8th Cir. 1989). The court upheld usingthe treasury bond rate, adding a 2% risk factor. Id.

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interest rate the debtor would have to pay in the open market, con-sidering the risks.127

Courts can also use compensatory rates or rates alleviatinghardships. Courts have used interest rates equalling the creditor'scost of funds.128 Courts have also averaged several rates to elimi-nate the hardship of applying one interest rate.12 9 Other courtsrely on experts who testify to the appropriate interest rate in a par-ticular context.13 0

A final, and seemingly most reasonable, rate for family farmdebtors is some form of the contract rate itself. Some courts keepthe contract rate unchanged.131 Other courts use the "prevailingmarket rate... with a maximum limitation on such rate to be theunderlying contract rate of interest."'13 2 A further possibility is touse the contract rate as a presumption13 3 and go from there.

None of these possible rates is perfect. The rates created forother situations and borrowed by bankruptcy courts invariably dis-favor one party by incorporating other context's external factors. 134

Rates compensating the lender for the cost of funds or reinvestmentrate are difficult to calculate.135 The averaging rate is somewhat

127. In re Camino Real Landscape Maintenance Contractors, Inc., 818 F.2d 1503,1508 (9th Cir. 1987). After examining various possible rates, the court concludedthat the rate should be determined on a case-by-case basis according to open marketstandards. Id.

128. In re Hardzog, 74 B.R. 701, 703 (Bankr. W.D. Okla. 1987). The court usedthe cost of funds as the appropriate interest rate because it thought the rate properlybalanced creditor and debtor interests. The court left the determination of the costof funds to a case-by-case determination and instead, simply stated that the cost offunds "should reflect the actual rate the creditor must pay to obtain the replacementfunds." Id.

129. See In re Hyden, 10 B.R. 21, 27 (Bankr. S.D. Ohio 1980). Because the caseinvolved an installment sales contract, the court concluded it was appropriate to av-erage the state's statutory interest rate for installment sales contracts, the contractinterest rate, and an arbitrary "leveling factor" of 6%. Id.

130. In re Moore, 25 B.R. 131, 134 (Bankr. N.D. Tex. 1982). The court relies onthe "uncontradicted testimony of the debtor's expert at the trial' in establishing theinterest rate. Id. at 28.

131. In re Thorne, 34 B.R. 428, 431 (Bankr. E.D. Tenn. 1983).132. In re Colgrove, 771 F.2d 119, 123 (6th Cir. 1985).133. In re Smith, 4 B.R. 12, 13 (Bankr. E.D. N.Y. 1980).134. Because the rates were established for completely different contexts, the in-

terest rates reflect different risks. For example, rates designed for judicial proceed-ings take different factors into account than prime rates commercial lenders quote tobusiness borrowers. Choosing between these rates poses a significant challenge for acourt since none exactly reflects the rate agreed to between the debtor and creditor.

135. For example, because interest rates fluctuate in the market, an interest ratedesigned to equal the creditor's cost of funds would have to be continuously read-justed to exactly compensate the creditor. McPhail, supra note 110, at 500.

Furthermore, the name "compensatory" is somewhat of a misnomer. Using mar-ket rates (as courts do when attempting to compensate the lender) does not ade-quately compensate a commercial lender because a bankruptcy loan poses great risk

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arbitrary,1 3 6 and the expert rate often leads to a battle of expertscreating uncertainty, introducing delay, and increasing cost.137Either party may be disadvantaged by the contract rate because offluctuations in current rates.

Selecting any of these rates forces a court to make difficult de-cisions in characterizing the loan.138 When characterizing the loan,courts should take the nature of the loan into account and treatcommercial loans differently from loans under special governmentprograms. Special government loans are isolated from marketforces, and this isolation should not be sacrificed by filing forbankruptcy. 139

Hence, regardless of the rates courts apply in other contexts,FmHA loans should be treated uniquely. Such treatment has legalprecedent. In re Doud140 stated that "[t]reatment of the FmHAloans must be viewed in light of the agency's mission to provide

and does not represent a voluntary agreement between debtor and creditor. Hence,using rates designed for voluntary loans does not "compensate" the lender for abankruptcy loan.

136. Averaging several rates may result in a rate that bears no relation to theoriginal loan or to protecting either the lender's or the creditor's interests. It simplyside-steps the problem of having to decide on one rate.

137. Matter of Wichmann, 77 B.R. 718, 720 (Bankr. D. Neb. 1987) (in light of suchproblems, the court expressly rejected rate determination methods requiring experttestimony in every case). Another court rejected methods requiring expert testimonyfor similar reasons: delay, cost, and differential abilities of the parties to hire ex-perts. In re Shannon, 100 B.R. 913, 933 n.47 (S.D. Ohio 1989). Expert testimony canalso potentially create wide variation "in rates for similarly situated debtors," which,in turn, encourages litigation. In re Neff, 89 B.R. 672, 679 (Bankr. S.D. Ohio 1988).When the experts disagree, courts can choose one expert's testimony over another,see In re Stratford Assoc. Ltd. Partnership, 145 B.R. 689, 703 (Bankr. D. Kan. 1992),or courts can choose their own rate, using expert testimony as a guide, see In re OaksPartners, Ltd., 135 B.R. 440, 447 (Bankr. N.D. Ga. 1991).

138. Selecting among these rates inevitably forces courts to characterize the "newloan," i.e. the repayment schedule as set out in the reorganization plan. Courts mustdecide whether to view the loan as first, voluntary or forced, and second, as beingmade at the time of the original loan or the bankruptcy plan confirmation. Somecourts select the rate by characterizing the loan as a voluntary loan between thecreditor and a solvent similar debtor. Then these courts decide whether to use ratesprevailing at the time the loan was made (e.g. the contract rate) or when the bank-ruptcy plan is confirmed (e.g. the market rate). Other courts take the bankruptcycontext into account and view the loan as a forced loan to an insolvent debtor. Thesecourts often add risk factors to other contexts' interest rates to compensate for theloan's involuntariness due to the debtor's poor financial condition. In a sense, thisrationale is artificial in that if a lender actually took the bankruptcy context intoaccount, the lender would not make the loan at all. By adding these risk factors,courts are really trying to give the creditors a little extra for the extended time andthe written-off portion of unsecured debt, essentially balancing the pro-debtor provi-sions of bankruptcy against the creditors' interests.

139. Since the market rate never applied to special low interest government loanswhen they were incurred, courts should not use market rates to set the interest ratesfor these loans in a bankruptcy plan.

140. 74 B.R. 865 (Bankr. S.D. Iowa 1987).

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credit to family farmers who are unable to obtain credit from con-ventional sources."141

Doud relies on another decision, Curry v. Block,142 which heldthat a Congressional enactment should be interpreted in light ofthe "evident legislative purpose in enacting the law in question."143

After examining the history of the FmHA, the Curry court con-cluded that the FmHA's purpose is "predominantly a form of socialwelfare legislation."144 The court determined that "Congress ...refutes the notion that the [FmHA] is strictly a business ven-ture."145 Therefore, when interpreting the section at issue146 thecourt said it must "attempt to implement the social welfare goals ofCongress as well as its directive to keep 'existing farm operationsoperating .... "147

Doud and Curry rely on the Supreme Court's characterizationin United States v. Kimbell Foods 148 of the FmHA's lending pro-grams as "forms of social welfare... [whose purpose] ... is to assistthe underprivileged farmer."149 In Kimbell Foods, the Court con-trasted the collection of taxes with repayment of FmHA loans.150The Court emphasized that collecting taxes was much more impor-tant than collecting outstanding FmHA loans. "The overriding pur-pose of the tax lien statute obviously is to ensure prompt revenuecollection," but the same cannot be said of FmHA loans. 151 "[FmHAloans] are a form of social welfare legislation, primarily designed toassist farmers... that cannot obtain funds from private lenders onreasonable terms."'5 2

Reasoning from the analyses in Curry and Kimbell Foods, theDoud court held that the contract rate should be applied to the lowinterest rate FmHA loans at issue, rather than the market rate.153

The court stated, "It would be incongruous indeed if a farmer whoon one hand qualified for FmHA protections because of high risk

141. Id. at 870 (citing Curry v. Block, 541 F. Supp. 506 (S.D. Ga. 1982), af'd 738F.2d 1556 (11th Cir. 1984)).

142. 541 F. Supp. 506 (S.D. Ga. 1982), affd 738 F.2d 1556 (11th Cir. 1984).143. Id. at 509 (quoting United States v. Bornstein, 423 U.S. 303 (1976)).144. Id. at 514.145. Id. at 513.146. 7 U.S.C. § 1981(a) (1982 Supp.). This was a 1978 amendment to the Consoli-

dated Farm and Rural Development Act entitled "Loan moratorium and policy onforeclosures." Id. at 508.

147. Id. at 514.148. 440 U.S. 715 (1978).149. Id. at 735.150. Id. at 734.151. Id. at 734-35.152. Id. at 735.153. In re Doud, 74 B.R. 865, 871 (Bankr. S.D. Iowa 1987).

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characteristics would on the other hand be required to forgo theseprotections to proceed under Chapter 12." 154

Doud's result comports with Curry v. Block's conclusion thatthe FmHA is not a "business venture."'5 5 The market rate shouldbe saved for loans to business ventures. Due to their nonprofitablepurpose, social welfare loans' interest rates should remain belowmarket rates after bankrputcy, just as before bankruptcy.

Other cases have adhered to Doud's reasoning. In reSchaall56 concluded that "determination of the interest rate to beapplied must be viewed in light of FmHA's purpose of providingcredit to farmers."'L 7 The court also stated that "FmHA lendingprograms have been characterized as forms of social welfare andthe purpose of the programs is to assist the underprivilegedfarmer."' 58 The court held that the interest rates of the FmHA'slimited resource loan program should apply if the debtors remainqualified for the program.159

The same court deciding Doud reaffirmed its holding in Matterof Simmons :160

This court acknowledged that the FmHA's mission is to providecredit to family farmers who are unable to obtain conventionalcredit and found that application of the conventional loan calcu-lation would thwart this mission. Implicit in this holding is arecognition that commercial banks are indeed different fromthe FmHA. The most obvious difference is that the FmHAlends money to those that commercial banks refuse at interestrates generally below market rates.... There is no reason toignore the FmHA's mission and place all risk on the debtor justbecause the FmHA borrower filed bankruptcy.'61

Hence, the court emphasized the difference between commercialbanks and the FmHA when rejecting the FmHA's argument for thecommercial loan rate.16 2

Some courts, however, have rejected treating FmHA loansuniquely. Arnold v. Porter163 held that a different rule should notapply to special FmHA loans, 164 and other courts have adhered to

154. Id. (citation omitted).155. See supra note 145 and accompanying text.156. 93 B.R. 644 (Bankr. W.D. Ark. 1988).157. Id. at 647 (citing Curry v. Block, 541 F. Supp. 506, 511 (S.D. Ga. 1982)).158. Id. (citing United States v. Kimbell Foods, Inc., 440 U.S. 715, 735 (1979)).159. Id.160. 86 B.R. 160 (S.D. Bankr. Iowa 1988).161. Id. at 162.162. Id.163. 878 F.2d 925 (6th Cir. 1989).164. The FmHA loan in that case was described as an "interest credit" whereby

the original contract rate of 9% was waived, and an interest rate of only 1% appliedwhen bankruptcy was filed. Id. at 926.

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Arnold's holding. 165 In Arnold the debtors' plan proposed that theycontinue paying the special interest rate on one note until periodicreview by the FmHA revealed the debtors no longer qualified, atwhich time the rate would revert to a higher rate.166 This solutionwas created to alleviate the concern expressed in an earlier case, Inre Kesterson.167 The Kesterson court worried that debtors woulduse the FmHA's limited resource operating loans' low interest rateswithout complying with applicable rules and regulations, such asthe annual review. 168

The Arnold court rejected the debtors' plan, stating, "we notethat the FmHA is generally treated as other creditors .... and inany event had Congress intended a different rule, it could have soprovided in Chapter 12."169 This assertion is incorrect on twogrounds. First, as Kimbell Foods demonstrates, the Supreme Courtdoes not treat the FmHA as other creditors. In Kimbell Foods theCourt explicitly called the FmHA lending program "social welfarelegislation" available for farmers unable to borrow from "privatelenders."'170 Second, as discussed later, relying on Congress' silenceremains very tenuous. 171 Silence is ambiguous and just as easilycan support the proposition that treating FmHA loans uniquely ispermissible since the statute does not forbid such treatment.

As described earlier, courts, such as in Doud, Curry, and Kim-bell Foods, have permitted pro-family farm legislation to treat fam-ily farmers uniquely both in the bankruptcy context172 and in othercontexts.173 The reasoning underlying these cases supports uniquetreatment of FmHA loans. In any event, a special exception should

165. Courts have followed Arnold's lead in applying the market rate to FmHAloans. In re Case, 115 B.R. 666, 671 (Bankr. 9th Cir. 1990); In re Branch, 127 B.R.891 (Bankr. N.D. Fla. 1991). Another court cited Fisher and Arnold as establishingthe prevailing market rate as the appropriate interest rate. In re Mason, No. 90-21413, 1991 WL 145844, at *2 (Bankr. W.D. N.Y. Aug. 2, 1991). Mason rejected thedebtor's proposed interest rate of 5% for an FmHA loan, concluding that the debtorfailed to prove this was an "appropriate rate." Id. Another creditor's expert testifiedthat the current rate for "such loans [as FmHA loan] was between 10.25% to13.75%." Id.

166. 878 F.2d at 926.167. 94 B.R. 561, 562 (Bankr. W.D. Ark. 1987).168. The court did not want debtors using only the best features of the program,

i.e., the low interest rates, while failing to adhere to the program's rules and regula-tions. Id. Such rules and regulations include "annual review and possible conver-sion to standard Farmers Home Administration loan terms." Id.

169. Id. at 930 (citation omitted).170. 440 F.2d at 735.171. See infra notes 188-89 and accompanying text.172. See supra notes 141-62 and accompanying text.173. MSM Farms v. Spire, 927 F.2d 330 (8th Cir. 1991), cert. denied, 112 S.Ct. 65

(1991) (upholding the constitutionality of statutes limiting the ownership of farmand ranch land to family farmers).

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certainly be created for FmHA's limited-resource operating loans.Based on this analysis, Fisher was wrongly decided, as the follow-ing section explains in greater detail.

IV. Fisher's Flawed Reasoning

The loans at issue in Fisher were limited-resource operatingloans that the FmHA offers at below market interest rates to farm-ers starting out, undercapitalized farmers, and farmers unable toqualify for conventional loans.174 To obtain one of these loans, theFishers had to satisfy the FmHA's special program requirements.The FmHA required that they own or run a small or family farm,satisfy a low income requirement, fail to qualify for conventionalloans, demonstrate poor managerial skills, possess only a limitededucation, and remain unable to maintain a reasonable standard ofliving without the reduced loan rate. 175

The Fishers filed for Chapter 12 bankruptcy on July 26, 1988,and on September 9, 1988, the FmHA filed a proof of claim for theloans to the Fishers.176 Because the Fishers lacked adequate col-lateral to satisfy the claims, the claims were written down underChapter 12's cramdown provision.177 The reorganization plan in-cludes proposed interest rates, and if any secured creditors object tothese rates, the court can "cram" the proposed discount rate "down"on the creditors. Before a court can confirm the plan over a credi-tor's objection, the creditor must receive the present "value" of thecreditor's secured claim.178

In Fisher, the debtors proposed to repay their FmHA limited-resource operating loans, taken out at below market interest ratesof 7.25%, 4.5%, and 4.5%, at a weighted average of 5.41%. TheFmHA objected, claiming that this rate failed to provide the presentvalue of the loans. The bankruptcy court179 and the district

174. 930 F.2d at 1362.175. Id. (citing 7 C.F.R. §§ 1941.4(h), 1943.4(h)).176. Id.177. 11 U.S.C. § 1225(a)(5)(B)(ii) (1988). This provision states the following:

(a) Except as provided in subsection (b), the court shall confirm a planif-

(5) with respect to each allowed secured claim provided for by theplan-

(B)(ii) the value, as of the effective date of the plan, of theproperty to be distributed by the trustee or the debtorunder the plan on account of such claim is not lessthan the amount of such claim.

178. Id.179. In re Fisher, 930 F.2d 1361, 1361 (8th Cir. 1991).

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court' 8 0 approved the contract rate proposed by the debtors, in-stead of the market rate proposed by the creditors, because the con-tract rate promoted the FmHA's policy of assisting disadvantagedfarmers.' 8 ' The Court of Appeals for the Eighth Circuit reversed,following the Sixth Circuit case, U.S. v. Arnold,I8 2 by relying onChapter 12's plain language.

The Fisher court decided to use the market rate, although itdid not decide how to compute the market rate; instead, it re-manded this issue to the lower court.'8 3 Because the market rateexceeds the original FmHA rate, the Fisher decision effectivelymakes very poor farmers pay more for their loans after declaringbankruptcy. The rate at which loans are paid back can mean thedifference between recovering from bankruptcy and losing the farm.

Requiring limited-resource farmers to pay interest rateshigher than the original contract rate does not make sense logicallyor as a matter of policy. The purpose of bankruptcy is to protectdebtors while they reorganize their loans.' 8 4 Making these farm-ers pay more nullifies this protection premise. Congress' overridingpurpose behind enacting Chapter 12 was to preserve the familyfarm.185 This purpose supports using the contract rate as theproper interest rate since a poor family farmer declaring bank-ruptcy would be more likely to be able to meet the lower contractrate payments than higher market rate payments. A closer exami-nation of Fisher reveals the court's flawed reasoning.

The Eighth Circuit focuses on the plain language of thecramdown provision.' 8 6 When interpreting the statute, the courtrelies on the fact that the cramdown provision makes no distinctionbetween the present value of claims resulting from special pro-grams, like the FmHA's limited-resource operating loans, and loansfrom other lenders.I8 7 This resembles the Conan Doyle approach tostatutory interpretation, in which courts hold that silence relatessomething about the statute.'8 8 However, the Supreme Court has

180. Id.181. 930 F.2d at 1363.182. 878 F.2d 925 (6th Cir. 1989). See also supra notes 164-69 and accompanying

text.183. 930 F.2d at 1364.184. ANDERSON & MoRRs, supra note 75, § 1.03, at 1-12.185. See supra note 101.186. For the text of the cramdown provision, see supra note 177.187. 930 F.2d at 1363.188. This derives from Doyle's Sherlock Holmes mystery "Silver Blaze," in which

a dog's silence told Sherlock information to help solve a mystery:[A] dog was kept in the stables, and yet, though someone had been inand fetched out a horse, he had not barked enough to arouse the two

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rejected this dubious canon of statutory interpretation.i8 9 More-over, silence can be interpreted to "say" different things. The Ar-nold court states that silence means FmHA loans cannot be treateduniquely since this is not expressly mentioned. However, con-versely, since special treatment is not expressly prohibited, the si-lence could also be interpreted to mean that FmHA loans can betreated uniquely. Silence is very ambiguous, and hence, serves as apoor foundation for statutory interpretation.

The Eighth Circuit asserts that the district court ignored thecramdown provision's language and wrote into the statute a re-quirement that the FmHA must continue to subsidize the debtorsunder the favorable terms of the original loan, even though the orig-inal loan ceased to exist after the debtors filed bankruptcy. 190 Thisreasoning ignores the relationship between the original loan andthe post-bankruptcy loan. The two are inextricably linked: Chapter12 is designed to allow creation of a new loan that the debtor canpay, based on the original loan's terms.

Furthermore, the Fisher court's heavy reliance on the provi-sion's "plain language" appears precarious in light of the ambiguityof the cramdown provision and the continued litigation concerning"value."'191 Because the language is not determinative, the legisla-tive history and policy behind the statute should be examined.192Chapter 12's legislative history fails to define "value." Thus, thegeneral policy behind Chapter 12 sheds the most light on this provi-sion's language.

The Fisher court describes the policy behind the enactment ofChapter 12. The court states, "Chapter 12 was created to 'give farmfamilies facing bankruptcy a fighting chance to reorganize their

lads in the loft. Obviously the midnight visitor was someone whom thedog knew well.

Sir Arthur Conan Doyle, Silver Blaze, in 1 THE COMPLETE SHERLOCK HoLMEs 335,339 (Doubleday & Company 1930) (1893). Although this canon usually applies to thelegislative history's silence, the underlying reasoning equally applies to silence of thestatutory language.

189. The Supreme Court states,In ascertaining the meaning of a statute, a court cannot, in the mannerof Sherlock Holmes, pursue the theory of the dog that did not bark.

Harrison v. PPG Industries, Inc., 446 U.S. 578, 592 (1980).190. Id.191. See supra part III.192. The Supreme Court has held that when a statute is deemed ambiguous, the

legislative history and overall structure should be examined. Green v. Bock LaundryMachine Co. 490 U.S. 504, 508-09 (1989). In fact, the Supreme Court effectively heldthat legislative history and purpose can trump the plain meaning of a statute, i.e.that anibiguity in the plain meaning is not required before examining the legislativehistory. In Green v. Bock Laundry the Supreme Court concluded that the plain lan-guage of the statute at issue "can't mean what it says." Id. at 511.

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debts and to keep their land.'" 193 However, the court's decision con-tradicts this purpose. The Fisher court ignored the In re Doud194case, also from the Eighth Circuit. Doud's policy-based analysisheld that the contract rate should apply to FmHA loans.195

Chapter 12's legislative history states that the purpose ofChapter 12 is to protect farm debtors while securing fair repaymentfor the creditor.196 This purpose supports using the contract rate.The contract rate would undoubtedly protect the debtors since therate remains below the market rate. The contract rate should beconsidered fair for creditors since they originally agreed on thisrate. Furthermore, in this context the creditor is a federal agency,the FmHA, established to serve limited-resource farmers; fair re-payment should be based on rates at which the agency usuallylends money, which are below the market rate.

If courts fail to maintain the contract rate in FmHA farmbankruptcy cases, an absurd result occurs: when the debtors needthe most protection, they receive the least protection. The contractrate would not only further the general purpose of Chapter 12 butalso would further the purpose of the FmHA loans. FmHA loansdiffer from conventional loans, and as a result, courts should treatthese loans differently.

Arnold interpreted the cramdown provision to be a compro-mise between the debtor and creditor,197 and the Fisher court reliedon this to use the higher market rate for these risky loans.198 How-ever, when the creditor is a federal agency set up to provide low-interest loans to low income people, the agency deals with high riskloans on a regular basis. It makes no sense to compensate the gov-ernment as a lender for risks it is obligated to assume.

Since the agency was created for the express purpose of aidingdisadvantaged farmers, agreeing to accept the loan's contract rateappears reasonable. Fisher underscores the issue of whom theFmHA serves.199 The FmHA's lending practices have been criti-

193. 930 F.2d at 1362 (citing H.R. REP. No. 958, 99th Cong., 2d Sess. 48-49 (1986),reprinted in 1986 U.S.C.C.A.N. 5249-50).

194. 74 B.R. 865 (Bankr. S.D. Iowa 1987).195. See supra notes 141-55 and accompanying text.196. It offers family farmers the important protection from farm creditors

that bankruptcy provides while, at the same time, preventing abuse ofthe system and ensuring that farm lenders receive a fair repayment.

H.R. REP. No. 958, 99th Cong., 2d Sess. 48 (1986), reprinted in 1986 U.S.C.C.A.N.5246, 5249.

197. 878 F.2d at 928.198. 930 F.2d at 1364.199. See supra note 45 and accompanying text.

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cized frequently in recent years. 20 0 Resulting legislative reformand case law have made the FmHA's actions more borrower-friendly.201 Finding the contract rate to be appropriate would fol-low the trend of restoring the FmHA to its original purpose of aid-ing poor farmers.

Even if the Eighth Circuit does not embrace the contract ratein all FmHA farm bankruptcy cases, a special exception should bemade for FmHA limited-resource operating loans. The loans at is-sue in Fisher were limited-resource operating loans. Doud and Inre Simmons202 held that all FmHA loans should be treateduniquely. But other cases, such as In re Schaal,203 created an ex-ception only for limited-resource operating loans. Even under thismore restricted holding, since the Fishers qualify for the program,they should get the limited-resource operating loan rates.

The Eight Circuit's Fisher decision undermines the policy ofpreserving family farms by inserting its own interpretation of "fair-ness." Fisher's heavy emphasis on creditors' rights in a Chapter 12bankruptcy should be saved for a more appropriate case involvingprivate lenders, not a case involving a government agency estab-lished specifically to help underprivileged family farmers.

Conclusion

"The family farm has become a rare species, nearly extinct."20 4

Traditionally, the family farm assumed an essential role in the set-tling and building of America. Congress' efforts to preserve familyfarms evidences its support of them, but the efforts often fail toachieve their goals. Existing programs often stray from Congress'intentions. The courts remain the last refuge in many cases toguide these programs back onto course.

Fisher was wrongly decided in light of Congress' purpose inpassing Chapter 12. Because the loans at issue were limited-re-source operating loans, the Eighth Circuit should have used thecontract rate for the cramdown interest rate. Fisher provided anopportunity for the court to help one of Congress' programs return

200. Neil D. Hamilton, The Role of the Law in American Agriculture, 38 DRAKE L.REV. 573, 577-78 n.8 (1989).

201. Id. One of the most significant cases influencing FmHA reform was Curry v.Block, 541 F. Supp. 506 (S.D. Ga. 1982). For a general discussion of how this caseaffected the FmHA's lending practices, see Guy R. Montag, FmHA Loan Servicing:Alternatives to Foreclosure, 35 DRAKE L. REV. 561 (1986).

202. 86 B.R. 160 (Bankr. S.D. Iowa 1988).203. 93 B.R. 644 (Bankr. W.D. Ark. 1988). Schaal held that FmHA's limited re-

source loan interest rates would apply if the debtors qualify for the program. Id. at647.

204. Kirkendall, supra note 10, at 96.

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to its intended path, but the court failed to seize the chance. Futureopportunities will undoubtedly present themselves, and the courtsmust recognize and utilize their power to help family farm legisla-tion achieve its goals. Family farmers have played an importantrole in our nation. The courts can help Congress ensure that theycontinue to do so.